On a hot, dusty street in the historic Colombian city of Medellín, Pablo Alvarez is ready for his next set of Western tourists. His white sun-hat, groovy shades and red Real City Tours shirt mark him out in the middle of the madness.
The battleground is the mountainous South American city, once ruled by drug lords, but now home to clever entrepreneurs who are carving a slice of the growing tourism industry.
Pablo, who studied a Master’s degree a world away at French business school Grenoble Ecole de Management, remains undaunted by the sectors increasing competition.
He founded his start-up business last year. Real City Tours’ anniversary was announced alongside news of the company’s rise to the top of TripAdvisor’s Medellín list. The business offers two types of tours, based on a unique online booking system. The inspiration came from Pablo’s passion for travelling.
His exotic tour provider is small, with few official employees, but the way it combines an online platform, historic locations and the founder’s own passion and interest will excite anyone trying to take advantage of the online travel craze.
“I think customers will buy into it because we organise these tours with love and passion,” says Pablo. “I want it to become an experience in Colombia and even the whole of South America in a couple of years’ time.”
It is understood that many tourism businesses are struggling to target their markets. Customers’ travel plans have been hampered by inflated holiday-time prices and the aftermath of the economic crisis.
Yet as big corporations have struggled to adapt to changing times, they have paved the way for innovative start-ups to make their mark in the online tourism cyberspace. Upstarter sites like Zaptravel, Adioso and Tingo are capitalizing on the stagnancy of the major travel players.
Demand is confirmed by the industry’s huge M&A activity. Priceline.com acquired travel search engine Kayak for $1.8 billion in November, and Expedia bought a majority stake in Trivago for $632 million a month later. TripAdvisor, the guides and user reviews site, snapped up travel start-up Tiny Post for an undisclosed amount last month.
Many of these upstarts combine clever online marketing with smoothly-built technology to target travellers. Many are also taking advantage of the economic boom in emerging markets.
“With the strong economic growth in China in the last decade, more and more Chinese tourists can afford overseas holidays,” says Zheng Ge, an MBA graduate of Bath School of Management. She is in the process of launching a travel start-up that will provide tourism resources to Chinese tourists visiting the UK.
Guided tours are one of the most popular bookings on tourism sites. But an increasing number of Chinese tourists, who contributed some £550 million the UK economy last year, prefer to travel with their own itinerary.
“In order to do this, people will need access to local resources and travel products, which is still not very easy due to the language barriers, payment and local knowledge,” says Zheng. “My business is aiming to fill the gap.”
On the other side of the pond, the potential rewards are even more enormous. In the US, $136 billion was spent on digital travel sales last year – an 8% increase from 2012, according to eMarketer. Throughout 2012, there was a 10% increase in online travel purchasing, according to Adobe Digital, while between 2009 and 2013, US travel sites banked $54 billion.
Online bookers are crucial to industry analysts as they provide scope as to how technology is transforming the travel sector.
More established tourism brands have struggled to adapt. The days when families visited their local travel agent’s shop is seemingly coming to an end. Instead, holiday-goers of all ages are booking breaks on their laptops, smartphones and tablets.
Bart Kappenburg founded Voyando earlier this month. The business plans to revolutionize the online travel shopping experience. The site’s users set their holiday preferences and bookers compete with each other to arrange the most enticing travel package. Prices for the service average from between $10 to $50.
Their success will be dependent on a smooth online platform, and a relatively simple comparison process in which bookers do the leg-work for potential customers.
“The internet brings travel shoppers an incredible ease of access and array of choice,” says Bart, a serial entrepreneur who started and sold a number of companies prior to Voyando. “Rather than scanning the web to find the right deal for the right trip, a customer can scan through a set of pre-packaged offerings, all of which have already been vetted by experts,” he adds.
During the recession, online travel agencies enjoyed a much bigger market share. As many of the world's economies continue on the path of recovery, mobile players are set to take the next biggest slice of the sector.
eMarketer predicts that digital travel sales will continue to edge upwards – slowly. Yet the firm's estimate for mobile travel sales – for both tablets and smartphones – puts sales at an expected $7 billion to $13 billion throughout 2014.
By 2017, eMarketer estimates mobile travel sales will total nearly $50 billion, and account for nearly 30% of all digital travel purchases.
ZapTravel, a semantic travel search engine, takes online travel sales to another level. The business does away with all the extra data entry required by most travel sites. ZapTravel searches are based on what you type into a single window – for example “I want to travel to London”.
The company works with 3,000 partners – from airlines to hotels. The business was founded by renowned tech entrepreneur Andrew Lacy in 2012. Andrew made his name by selling Tap Tap Revenge, an app, to Disney for an undisclosed amount – although it is thought to be in the region of several million dollars. ZapTravel plans to expand into package deals.
“The internet killed the corner travel agency, but replaced it with something far worse – tools, search engines and endless content. The average consumer spends 10 times more time researching a trip today than they did 20 years ago,” says Andrew, who earned an MBA from the Stanford Graduate School of Business.
“Most travel 'tools' out there don't really solve the fundamental problem that people need less, not more – an intelligent partner to connect all the travel dots and provide high quality options,” he adds.
However, it is not all plain sailing for the digital travel market – or those MBA students who plan to take advantage of it. Online travel is considerably more mature than other types of online retail and will therefore continue to lose share as a subset of overall business-to-consumer (B2C) e-commerce.
An eMarketer report estimates that travel made up approximately 36% of all B2C e-commerce sales last year, but by 2016, that share will drop to less than 30% and continue to fall steadily.
There are also wider concerns about weak infrastructure and tax systems in some emerging economies. While start-upers have taken on the juggernauts, there are several factors hampering the tourism industry’s development.
“The sector is facing challenges such as lack of good quality tourism infrastructure, global concerns regarding health and safety of tourists, disparate passenger/road tax structures across various states and shortfall of adequately trained and skilled manpower,” says Jaideep Ghosh, a management consulting partner at KPMG India, in a report released last year.
“While several plans and programs have already been devised for tackling these challenges, successful implementation would be critical to accelerate growth.”